Daily currency report
Spain’s 2013 budget was presented and coupled with the liquidity injection into money markets by the Chinese Government; the two events are increasing risk appetite. As a result, the euro has strengthened against a weakening US dollar and yen. Spain’s budget primarily focused on spending cuts rather than tax increases and does more than what the EU recommended. The US economic data released made for painful reading, however, weekly jobless claims saw a fairly significant improvement, which is encouraging ahead of next week’s non-farm payrolls data.
Bank of England policymaker Paul Fisher said that he saw stronger growth in Q3 and that he did not see inflation easing below 2.5 per cent in the next two to three years. These hawkish comments arrive ahead of next week’s policy meeting. The central bank has recently lost one of its most dovish members as well. Nevertheless, the central bank is widely expected to leave its policy unchanged until members have a chance to see the November inflation report and Q3 GDP.
Negative economic data failed to inspire markets. Pending home sales declined, durable goods dropped an eye-popping -13.2 per cent and final Q2 GDP was revised from 1.7 to 1.3 per cent. Weekly jobless claims data was the only release that helped to calm investors’ nerves by dropping to 359,000. The downward GDP revision was primarily caused by a drop in inventories due to the drought, a decline in consumer demand and weaker exports. The figures support the Fed’s call to action at its last policy meeting and minutes to that meeting will be released next week.
The rate of German unemployment held steady at 6.8 per cent but the number of unemployed picked up slightly. EU money supply figures revealed a decline in private sector loan growth and sentiment figures were weak. The data only contributed to the weaker euro. The Spanish budget was more about spending cuts than tax increases. The various reforms and cuts announced in Spain accumulatively exceeded EU recommendations. Spain’s Prime Minister Mariano Rajoy is trying to avoid having to ask for a bailout and markets will learn the cost of refinancing troubled banks in Spain. Estimates put the amount between €40-€60 billion, which is under the €100 billion already been pledged by EU leaders. Optimism over the 2013 budget for coupled with the cash injection into the money market from helped improved risk appetite.